Lax inspection on financial special treatment for late Keangnam bizman

It is hard to understand audit results performed by Korea’s Board of Audit and Inspection (BAI) on the Financial Supervisory Service (FSS) in regards to the 3rd workout (financial rescue process of a firm) of Keangnam Enterprises in 2013. During the announcement of audit result on Apr. 22, the BAI said, “The audit has found that then-director and team leader at the FSS unilaterally intervened and demanded to provide special favors for Chairman Sung Wan-jong, the major shareholder of Keangnam Enterprises.” However, very few would believe that the decision for debt-equity swap without capital reduction, giving great benefit to the major shareholder, was made by only a director and a team leader at the FSS. Even though, the BAI ended the audit after requesting for punishment of the FSS team leader, without pressing charges to the prosecution, not to mention finding the mastermind behind the scene. The director of Corporate Finance Division in question, Kim Jin-soo, was even not mentioned as a punishment target as he retired from the financial organization this January. Insiders in the financial sector are saying this audit was a mere scratching the surface.

Chairman Sung wrote in his diary that he met with the FSS Director Kim at ‘Landmark 72’ built by Keangnam Enterprises in Vietnam on Sep. 3 in 2013, right before a fashion show where Korean President Park Geun-hye attended, and also had meetings with chief of staff to the president Kim Ki-choon on Sep. 4 and 5. At that time, influential financial figures accompanied President Park during her visit to Vietnam including FSS Governor Choi Soo-hyun, Keangnam Enterprises’ bank creditor Shinhan Bank President Seo Jin-won, Woori Financial Holdings Chairman Lee Soon-woo, and Export-Import Bank of Korea Chairman Kim Yong-hwan. Chairman Sung wrote that he met with FSS Governor Choi on Oct. 23 in 2013 right before Keangnam Enterprises filed for the workout program and in January of 2014 when the FSS director and the team leader exercised influence over the workout.

The FSS executives involved in decision over Keangnam’s workout were Governor Choi, Vice Governor Cho Young-je, Director Kim and Team Leader only known as A, who all are from Chungcheong Province, the hometown of Chairman Sung. Kim Yong-hwan, then-Chairman of Export-Import Bank of Korea, is also from Chungcheong Province.

When asked why audit was not performed on them, the BAI answered, “Take into consideration that the audit was performed in November and December (before Chairman Sung committed suicide).” The audit agency’s answer sounds like a confession to admit that it cut off a tail by holding some of mid-level FSS executives accountable for the scandal, rather than thoroughly investigating the 3rd workout of Keangnam Enterprises carried out by some figures in the President Park Geun-hye administration.

The BAI carried out a slap-on-the-wrist audit on delinquent savings banks in the early 2011, only recommending cautions and punishment against directors and group leaders at the financial authorities. However, the board of inspection became humiliated as a series of large-scale corruptions related to some influential figures of the administration came to light in 2012. The problems would be festered further by lax audit and inspection of the BAI that is sensitive to the politics. Then-floor leader of Grand National Party Hwang Woo-yeo urged the inspection organization to be born again taking opportunity of the incident. However, it seems that the inspection agency is still performing audit and inspection to suit the tastes of politics. If prosecution’s investigation finds the figures who gave special financial treatment to Keangnam Enterprises to protect Chairman Sung, the BAI must hold responsibility for its inspection that let wirepullers pass over.